ANZ still thinks that the US dollar is likely to strengthen against Asian currencies over the next two years, despite its recent stumble.

“While the current Fed policy normalisation is gradual and we believe that Asian economies are well placed to weather it, we continue to expect further USD strength against Asian currencies,” says Khoon Goh, head of Asia research at ANZ.

“There will be a further narrowing in the yield differential between US and Asia, and higher US bond yields will also result in increased USD borrowing costs for corporates in the region.”

ANZ’s updated forecasts are shown in the table below. Those in red indicate changes from the bank’s previous forecasts.

On the Chinese yuan, a currency many are keeping a close eye on for a variety of reasons at present, ANZ says that it is still looking for a mild weakening against the US dollar towards 7.10 by the end of 2017.

“Despite various administrative measures to reduce capital outflow pressures, the tendency remains towards more outflows which are not being matched by inflows at this stage,” says Goh.

“We expect the authorities to eventually allow the currency to adjust in order to prevent further erosion of their FX reserves.”

The USD/CNY currently buys 6.895.